If Congress doesn't agree on a way to extend the Bush era tax cuts January first, your taxes will go up. That has many people and accountants looking at ways to save money on taxes.
Usually tax advisors look at deferring income to next year, taking deductible expenses now, and encouraging you to make charitable donations to reduce your taxes. But not this year. Uncertainty over the fiscal cliff has some prescribing the opposite.
At the accounting firm Keiter, Partner Gary Wallace is already fielding questions from clients: how to save money on taxes that could go up? Here are some ideas he and a Time magazine article both suggest.
If you're already planning to sell an investment, such as stock, both Wallace and Time suggest selling it this year, rather than next. Capital gains taxes could be going up.
Explains Wallace, "Now they're looking at accelerating their capital gains with the tax rates being lower at 15% for most tax payers in 2012, and potentially going up to 23% in 2013."
Wallace says you may want to delay taking some deductions until next year's taxes, when the rates could be higher, such as making charitable donations in January instead of December, or paying estimated state or property taxes when they're due, rather than paying them early for a credit.
"Many of our clients are looking at actually postponing those deductions and maybe even accelerating income to 2012 to take advantage of the lower tax rates," said Wallace.
Both Time and Wallace say consider converting your traditional IRA to a Roth IRA. "With increasing tax rates, clients are again focusing on their IRA's," said Wallace. "They're taking a Roth IRA, which would become taxable in 2012 if you converted. Then you'd have no more tax in the future as you withdraw on your IRA."
If you're planning to give someone money, Wallace and Time say this year could be better than next. The estate tax and lifetime gift tax exemption is set to drop from $5 million to $1 million dollars. The maximum tax on gifts larger than that could rise from 35% to 55%.
Said Wallace, "You could make lifetime gifts up to $5 million without any gift tax. That's scheduled to expire at the end of 2012."